Envista’s Margins Improve Despite Slowing Core Sales Growth

Date of Call: Feb 5, 2026

Financials Results

• Revenue: $751 million in Q4; $2.7 billion for FY 2025, with core sales growth of 10.8% in Q4 and 6.5% for FY 2025.
• EPS: $0.38 per share adjusted EPS in Q4, up more than 50% YOY; $1.19 adjusted EPS for FY 2025, up over 60% YOY.
• Gross Margin: 55% adjusted gross margin in Q4, down 220 basis points YOY; 55.1% for FY 2025, a slight decline YOY.
• Operating Margin: 14.8% adjusted EBITDA margin in Q4, up 90 basis points YOY; 13.7% for FY 2025, a 190 basis point improvement YOY.

Guidance:

• Core sales growth of 2% to 4% for 2026.
• Adjusted EBITDA growth of 7% to 13% for 2026.
• Adjusted EPS of $1.35 to $1.45 for 2026.
• Free cash flow conversion around 100% for 2026.
• Expect stronger Q1 core growth and slower Q4 growth due to billing day effect.
• Tax rate expected to be approximately 28% of adjusted pretax income in 2026.

Business Commentary:

Revenue Growth and Product Innovation:

• Envista Holdings Corporation reported sales of $751 million for Q4 2025, with core sales increasing 10.8%, driven by broad-based growth across all businesses.
• This growth was attributed to increased new product activity, clinical training, and tariff-related price increases, with significant contributions from new product launches in all major businesses.

Margin Expansion and Cost Management:

• The company's adjusted EBITDA margin for Q4 was 14.8%, a 90 basis points improvement over the previous year.
• This improvement was driven by volume, price, and productivity benefits, offset by investments and prior year FX impacts, alongside a reduction in G&A spending by over $35 million.

Strategic Investments and Share Repurchase:

• Envista launched a $250 million share repurchase program in early 2025, repurchasing over $160 million worth of shares, and returned more than 19,000 underserved patients through its Envista Smile Project.
• These actions were part of a strategic plan to enhance shareholder value and support community initiatives, reflecting the company's focus on growth and operational efficiency.

Tax Rate Optimization:

• The company's non-GAAP tax rate for Q4 was 30.3%, with expectations of a reduction to approximately 28% for 2026 due to improved U.S. profitability and interest expense deductibility.
• This improvement is linked to strong business performance in the U.S., enabling higher deductibility of interest expenses.

Guidance and Market Outlook:

• For 2026, Envista provided guidance for core sales growth of 2% to 4% and free cash flow conversion around 100%, with adjusted EBITDA growth of 7% to 13% and adjusted EPS growth of 13% to 22%.
• The guidance reflects the company's confidence in building on current momentum, factoring in market stability and potential improvements in pricing and productivity.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q4 and 2025 as 'strong quarters' with 'broad-based growth,' 'accelerating sequential growth,' and 'encouraging progress' on the value creation plan. Guidance for 2026 is 'in line with our medium-term objectives' and reflects 'confidence in building on this momentum.'

Q&A:

• Question from Brandon Vazquez (William Blair & Company L.L.C.): Can you talk about the potential upsides and risks to guidance, especially regarding top line and bottom line momentum exiting the year?
  Response: Upsides include momentum, potential market improvement in Diagnostics and Consumables, and pricing if inflation remains elevated. Risks are macro volatility and China VBP timing uncertainty, with upsides slightly outweighing risks.

• Question from Jonathan Block (Stifel, Nicolaus & Company, Incorporated): What are the assumptions regarding VBP for ortho and implants embedded in the 2026 guidance?
  Response: Guidance assumes a second implant VBP in Q2 and ortho VBP likely in the second half, with typical pre- and post-VBP order pattern impacts.

• Question from Kevin Caliendo (UBS Investment Bank): How did implants perform versus the market in Q4, and how much did new products contribute to growth?
  Response: Implants outgrew the market in Q4; growth was driven by commercial front-end investment, customer training, and tariff-related pricing, not new products which launched later.

• Question from Jeffrey Johnson (Robert W. Baird & Co. Incorporated): Any change in competitive positioning or market trends for Spark in Q4, and what is the profitability progression outlook?
  Response: Spark outgrew the market again; competitive landscape unchanged. Profitability was consistent in Q4, with improvement driven by operations and unit cost reductions, expecting continued annualization and fleet average improvements.

• Question from Elizabeth Anderson (Evercore ISI Institutional Equities): What are the focus areas for future growth given the current stable business environment?
  Response: Focus remains on executing the value creation plan, with priorities on growth (new products), operations (productivity), and people (culture), having addressed past disruptions in guidance, investment, and organizational stability.

• Question from Steven Valiquette (Mizuho Securities USA LLC): Why is North America performing strongly across key product categories?
  Response: Strong growth in North America was broad-based with no major geographic differences, with strength across all regions in Q4 and for the full year 2025.

• Question from Lilia-Celine Lozada (JPMorgan Chase & Co): What are the sources of SG&A leverage, and should R&D outpace revenue growth in 2026?
  Response: SG&A leverage came from volume, price, productivity, and G&A reductions. Expect continued margin expansion from growth and productivity in 2026, with R&D intensity improving and sales/marketing more flat to modestly increasing.

Contradiction Point 1

Timing and Impact of China's Implant VBP (VBP 2.0)

Inconsistent statements on when the implant VBP takes effect and its expected business impact.

What assumptions underlie the VBP (price controls) for Ortho and Implants in the 2026 guidance? - Jonathan Block (Stifel)

2025Q4: Expects Ortho VBP 1.0 in H2 2026 and Implants VBP 2.0 likely in Q2 2026... timing is uncertain. - Paul Keel(CEO)

What is the current dental market situation in China, considering VBP and consumer environment factors? - Elizabeth Anderson (Evercore)

20251031-2025 Q3: A second, smaller VBP (2.0) for implants is anticipated but not yet officially communicated. - Paul Keel(CEO)

Contradiction Point 2

Spark Business Profitability Trajectory and Margin Expectations

Contradiction on whether Spark margins are expected to improve from a low base or are already reaching a sustainable level.

What drove Spark’s Q4 growth (high single-digit vs. high teens prior), any changes in competitive positioning, and the Q4 profitability trend and modeling guidance? - Jeffrey Johnson (Robert W. Baird)

2025Q4: Spark was profitable in Q4 at consistent levels with Q3... Future Progression: Annualization of Q3/Q4 profitability in 2026. - Eric Hammes(CFO)

What is the expected margin trajectory for the Spark aligner business? - Allen Lutz (Bank of America)

20251031-2025 Q3: Spark margins are expected to reach fleet average over time... driven by unit cost progress, improvements in setup/design times... - Paul Keel(CEO)

Contradiction Point 3

VBP Impact Magnitude and Timing for Implant Business

Contradiction on the price decrease magnitude for Implants VBP 2.0.

What is the expected VBP impact on Ortho and Implants, including its extent and net effect? - Lilia-Celine Lozada (JPMorgan Chase & Co)

2025Q4: Ortho VBP 1.0... ~40–45% price decrease. Implants VBP 2.0... ~10–20% price decrease. - Paul Keel(CEO)

How is China's situation, including VBP impacts and the consumer environment? - Elizabeth Anderson (Evercore ISI)

2025Q3: Implant VBP 2.0 is expected but not yet communicated; it will likely be smaller than the first VBP in terms of price decline and inventory impact. - Paul Keel(CEO)

Contradiction Point 4

China Business Growth and VBP Impact

Contradiction on China sales growth trajectory and VBP's timing and effect.

For the guidance, what are the potential upside and risks to the top and bottom lines, considering end-of-year momentum? - Brandon Vazquez (William Blair & Company L.L.C.)

2025Q4: China had extra high growth due to easy comp... China (VBP impacts on Ortho and Implants; timing uncertain, ~7% of total sales). - Paul Keel(CEO)

What was the year-over-year decline in China's Brackets & Wires business this quarter, when will VBP become growth additive, and are there details on a potential second round of implant VBP in China next year? - Jeffrey D. Johnson (Robert W. Baird)

2025Q2: China Ortho (mostly Brackets & Wires) was down 20-30% year-over-year in H1, expects roughly flat in Q3 and robust growth in Q4... - Eric Hammes(CFO)

Contradiction Point 5

Spark Profitability Timeline

Contradiction on when Spark business unit will become profitable.

What drove Spark's Q4 growth, what changed in competitive positioning, and what was the Q4 profitability trend and how to model future progression? - Jeffrey Johnson (Robert W. Baird & Co. Incorporated)

2025Q4: Spark was profitable in Q4 at consistent levels with Q3... Annualization of Q3/Q4 profitability in 2026. - Eric Hammes(CFO)

When is Spark expected to achieve positive EBIT, were there recent pricing adjustments, and what are the expectations for top-line growth and EBITDA margin trends in Q3/Q4? - Jonathan David Block (Stifel)

2025Q2: Spark is still expected to turn profitable in second half 2025... - Eric D. Hammes(CFO)